Traditionally, real estate investment trusts (REITs) and the broader real estate sector are viewed as defensive, income-generating ideas.
Sometimes, conventional wisdom is cast aside to investors’ advantage. Take the case of the Goldman Sachs Future Real Estate and Infrastructure Equity ETF (GREI). The exchange traded fund is a fresh approach relative to peers in this category.
More so than old guard rivals in the real estate ETF group, GREI taps into sources of growth in this sector. However, owing to the rough times encountered by growth stocks earlier this year, some growthier real estate names, including some GREI components, are offering investors value.
“It’s been an up-and-down ride for real estate stocks over the past year, but there may be opportunities for investors among undervalued, high-dividend-paying companies in the sector,” noted Morningstar analyst Lauren Solberg. “But as interest rates jumped and fears of a recession spread, returns went from feast to famine in 2022.”
The actively managed GREI holds 48 stocks, and while the ETF’s point of emphasis is a modern approach to real estate coupled with futuristic infrastructure exposure, a surprising number of the fund’s holdings can currently be considered credible value ideas.
Morningstar’s list of undervalued REITs includes AvalonBay Communities (NYSE:AVB), Equity Residential (NYSE:EQR), Invitation Homes (INVH), Ventas (NYSE:VTR), and Welltower (NYSE:WELL) — all of which are GREI member firms.
“We also like Ventas’ acquisition of New Senior Investment Group to expand its exposure to the sector ahead of what we believe will be a decade of strong growth,” said Morningstar analyst Kevin Brown.
Welltower, which accounts for 2.12% of GREI’s roster, is buoyed by favorable demographic trends, including the aging U.S. population, which could be a boon for operators of assisted living facilities.
“However, month-over-month occupancy improved through 2021 as vaccination rates went up, and we remain optimistic about the sector’s longer-term prospects given that the industry should eventually recover from the impact of the virus, supply has started to fall below the historical average and will remain low for several years, and the demographic boon will create a massive spike in demand for senior housing,” added Brown.
Morningstar is also constructive on AvalonBay Communities, Equity Residential, and Invitation Homes. Those three undervalued REITs combine for about 6.5% of GREI’s portfolio.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.